Prajna Capital - An Investment Guide

There’s no secret or magic to investing. Ignore the fads, and keep your eye firmly on your goals IF YOU dig in the same spot long enough, you’ll eventually find water, goes an old saying. But a lot of people dig in one place for a while, and then get impatient or distracted and start digging in another place, and then another... When they don’t find water in any of those, they blame their luck. It’s surprising that more people haven’t figured out the simple trick. Of course, there’s no denying the importance of choosing the best place to dig in the first place! In my line of work, I often encounter people who seem to dart in a new direction randomly. Many get caught up in the latest investing fads. There are broad trends like equity and mutual fund investing. Then, real estate, commodities, gold. And then there are micro-trends—read “fads”—like going overboard on midcaps, banking stocks, the communications sector, and infrastructure. In pursuit of the latest trend, investors chu...

Examine Sector Weightings and the Fund's Concentration: The funds that have large stakes in just one or two sectors are expected be more volatile than the evenly diversified funds. A concentrated portfolio may also get more successful if its stocks are performing better. You may add a concentrated fund in your portfolio but mostly the concentration should be in a diversified fund which is more predictable. Invest in a few funds and develop a Plan: But it would not mean you should invest only in one fund. Even though the funds are diversified, many funds go though a few years of poor performance. When you invest in only one fund, you might lose heavily. On the other hand, investing in too many funds may lead to duplication of many securities and a portfolio with no focus. For the long-term financial goals, equities are the best option. Keep It Simple: To keep the selection of fund simple, you should stick with well diversified and well established equity funds, an index fund for equ...

IT IS a blend of value investing with aspects of behavioural finance . It tends to be bearish when the market is bullish and vice-versa. Welcome to the world of contrarians — who believe in going against the wind. Although it is never easy, remember what doesn’t kill you makes you stronger . The-60 year-old (a contrarian investor) is a firm believer that to be successful, you should invest in out of flavour stocks or sectors that are not of prime interest to most investing community. Rather than investing in then popular sector stocks such as realty, banking and others invested a large chunk of money in sugar stocks in January, when the market was at its peak. His intellectual independence with a healthy dash of agnosticism about consensus views reaped dividends. Unlike the other sector stocks, which are bleeding right now, His decision to invest in sugar, stock saw his portfolio’s worth increasing by almost 30-40%. Here’s an insight into the contrarian world of investing, what...

INVESTING in equities is riskier than and definitely demands more time than other investments. However, it can probably be more rewarding than you can imagine and certainly very exciting! World over, and even in India, stocks have outperformed every other asset class over the long run. Stocks are probably your best bet against inflation too. If equities tempt you but you are scared to take the plunge during these volatile times, here's a complete step-by-step guide on investing in equities. Step 1: Understand how the stock market works When you read you begin with A-B-C. When you sing you begin with Do-Re-Mi. And when you invest in stocks you begin with business-company-shares. Before you embark on your journey to invest in equities, teach yourself how the stock market works. Step 2: Learn how to choose a stock Having understood the markets, it is important to know how to go about selecting a company, a stock and the right price. A little bit of research, some smart diversificati...

The domestic markets remained in a bear grip over the last one year due to the slowdown in the US and major European countries. The key market indices here lost over 50 percent during the last one year. Stocks in real estate, infrastructure and automobile sectors were among the worst hit during the last one year as they lost around 70 to 90 percent from their peaks 12 months ago. The market outlook for the short term still remains negative and investors are advised to exercise caution while investing in equities. According to the current market situation, it looks like the first half of 2009 will remain bad for the markets and things will start improving in the later part of this year. The markets have already factored in much of the bad news and stocks in many sectors are available at attractive valuations. The possibility of further market corrections (10 to 15 percent) from the current levels still exists as more bad news comes from global markets. But analysts rule out a sharp d...

It's interesting how laying hands on investment-related advice, i.e. the 'dos and don'ts' of investing, is rather easy nowadays. However, there is little information available on how to make the most of one's money. Following some rather elementary tips can go a long way in not only saving money, but also deriving maximum benefit from it. Perhaps it's the demanding nature of our everyday chores that make us overlook these tips. In this article, we discuss 4 tips that will help you make the most of your money. 1. Do not allow your money to lazy Leaving money languishing in a savings bank account is akin to committing a cardinal sin in financial terms. At best, a conventional savings bank account can fetch an annual return of around 3.50%. The smarter thing to do is to put that money to use by gainfully investing it. Of course, a provision needs to be made for contingencies. However, all monies over and above that should be invested. For example, you could consid...

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Most couples plan their strategies together but make mistakes while investing. Here’s how they can avoid the common errors Make no mistake. Ignorance is no longer bliss. In fact, many couples goof-up while investing together because they are not financially transparent to each other and don’t share a common goal. KEEPING SECRETS You may find questions from your spouse as an intrusion into your privacy, but financial planners believe that sharing financial details with each other is the first step that a couple takes towards their family financial goals. If you plan to invest together, then it’s important that you should be transparent to each other on the financial front. The whole idea is that you should be able to determine how much you will set aside for investments after making all the deductions for personal and household expenses. IMBALANCED APPROACH As a couple, you may have huge assets and hold stocks, but it’s important that you should direct a part of the investments for emer...

When it comes to investing, there are two styles to it. They are: 1) Active 2) Passive Lets discuss these in detail: 1) Active Active investing is a strategy in which the fund manager is highly involved in buying and selling of stocks (in case of mutual fund). Here the aim of the manager is to beat the returns generated by the corresponding benchmark or an index. 2) Passive On the other hand, in the passive style of investment, stocks are bought with a long term perspective. Here the portfolio is not as frequently churned as it is in active investing and the manager does not resort to profit booking based on short term price fluctuations. Indexing is an example of passive form of investing. An index fund invests in same stocks, in the same proportion, as in an index like Sensex or Nifty.

1) Voluntary pension fund Pension funds and retirement planning go hand in hand. A typical pension scheme involves making a voluntary contribution during one’s working life. The pension fund in turn invests it to create a corpus and pays a pension income to the individual on his/her retirement. A 39-year-old salaried individual contributes Rs 10,000 monthly to an eligible pension fund and is planning to retire at 45 years. On his retirement, he/She will receive a monthly pension of Rs 12,000 from this pension company. His taxation would be as follows: Pre-retirement, the contribution to the pension fund of Rs 1,20,000 is allowed as a deduction from his taxable income up to an aggregate amount of Rs 100,000 under Section 80C of the Income-Tax Act. He/She being in the highest bracket would get a tax break of Rs 33,900 on this account. On his retirement, his monthly pension will be taxed as salary at the applicable slab rates. Where He/She opts for a commuted amount of pension at the tim...

The three options available in mutual fund schemes to help you choose one. Most mutual funds offer an option to investors to either receive the dividends or to have it reinvested in the fund. This is an interesting choice that investors have to make while making investments in mutual funds. The investor has to decide whether he wants to receive the amount of income earned in the form of dividends or to accumulate the gains through the growth option. The option of dividend reinvestment can be used favorably by investors depending on their specific needs. There are three options available for an investor: • Dividend option • Growth option • Dividend reinvestment option Dividend option Under the dividend option with a payout facility, the investor receives regular income in the form of dividends as and when the fund declares dividends. In case the investor opts to take dividends, he gets a current income. Also, he gets tax benefits on such a payout. As per the current income tax rules, ...

Some investment avenues for those who don’t want to take the risks associated with stock markets When the stock markets go the downside way, investments in fixed deposits ( FDs ) become attractive again. FDs remained a dormant investment avenue for the past few years, mainly because of the fact that the interest rates were low, and these investments are unsecured. So, the government's saving schemes, especially the post office saving scheme, had an edge over FDs. Fixed deposits attractive again However, some recent changes have again brought FDs into the limelight. The contributing factors include the decision to give tax breaks in terms of coverage under Section 80C of the Income Tax Act. The second major factor has been the gradual increase in the interest rates on FDs. These deposits have been brought on par with small savings schemes. Investments in term deposits for those planning to take a tax deduction will have a lock-in period of five years. The government notification sa...

While there’s no silver bullet here are some advice that gob smacked small retail investors can use to mitigate their nightmares RAJESH (Just a Name used in this article) works as a system analyst at one of the top IT companies of India. Apart from forwarding emails, which his job requires him to do, he passionately tracks the domestic equity market. His favorite anecdote about the market until recently was: “Each time the market crashes, if you sell your house and invest in the stock market, in a month, you’ll be able to move a couple of suburbs closer to South Mumbai.” Two months ago, all you had to do was name a stock and he would have told you its last traded price. You name a brokerage and he would have told you which stocks they were betting on. Any news or rumor, no matter how trivial, as long as it was remotely related to the equity market, he had it covered. A day didn’t pass by without him arguing, disputing, advising or seeking advice on various message boards on the interne...

It sounds a little odd. Thirty-year-old person is yet to get a receding hairline, but is already talking of retiring. Just five years ago, he did his post graduation from a reputed B-school in India, and is already a vice-president in a large entertainment company. He has had a successful career till date, earning a seven-digit salary. Now, he is planning to throttle his career life even more for he doesn’t see himself working after the age of 50. For that’s the time he is planning to pursue his life-time passion of wildlife photography. This person is not the only one who aspires to retire early. But could that be a reality for this person and many other people? While the idea of a retired life could be a permanent good bye to all the work-related stress, the fear is of outliving your savings. Financial planners, therefore, advices a proper retirement plan to target a kitty that could earn enough income to sustain one’s lifestyle. Take the case of this person who is planning to retire...